Text size:

  • Small
  • Normal
  • Large
The new Iranian Oil Minister, Bijan Namdar Zanganeh. AFP PHOTO / BEHROUZ MEHRI
The new Iranian Oil Minister, Bijan Namdar Zanganeh.  AFP PHOTO / BEHROUZ MEHRI

Hassan Rouhani and Barack Obama handshake could thaw relations and lead to a major shift in energy markets

A false dawn in relations between the US and Iran? Or a breakthrough and shift in the energy markets?

A handshake between the Iranian president Hassan Rouhani and Barack Obama – a possibility at the United Nations tomorrow – would make headlines.

It might turn out to be no more than another of several false dawns during the 34-year cold war between Iran and the United States. Or it could be the opening for a diplomatic breakthrough and a major shift in energy markets.

Resolution of the dispute over Iran’s nuclear programme could open the way to normalisation of relations between the US and the Islamic Republic. There is still a long and winding path to that goal – it could be derailed by hardliners on either side, or by the inevitable pressure of turbulent events, in Syria or elsewhere. But even a relaxation of sanctions could allow Iran to regain its role as a leading oil and gas player.

The new oil minister, Bijan Zanganeh, previously held the post from 1997 to 2005. His first tenure was regarded as a golden age by the Iranian oil industry and international companies. It certainly was, by comparison with the Ahmadinejad era that followed. But viewed objectively, it was only a partial success. Oil production increased from 3.8 million barrels per day to 4.2 million bpd, and gas output more than doubled. Major contracts were signed with Total, Shell, Statoil and Russia’s Gazprom.

But major strategic goals were not met. Other than Turkey, Iran did not become a gas exporter to its neighbours, which would have built its regional influence. It did not develop LNG exports despite exhaustive negotiations. The reformist camp around Mohammad Khatami, a former president, was consumed in debate over whether gas should be exported, used in industrial development or to increase oil production. As a result, they achieved none of those things. Domestic consumption soared because of profligate subsidies. And new oil developments dried up as international companies became frustrated with the unattractive “buy-back” terms.

As long as sanctions persist, Iran can do no more than nibble around the edges, search for loopholes and try to implement a war economy.

But given a deal on the nuclear issue, Mr Zanganeh’s announced strategy for his second period in office is sensible – to expand gas-based industries at home, develop new gas exports, restore oil production to pre-sanctions levels, and develop cross-border fields shared with Iran’s neighbours in the Gulf, Iraq and the Caspian Sea. He would have to attract back experts from the Iranian diaspora, sidestep bureaucracy and politicised decision-making – and convince oil majors that Iran was truly open for business.

The return of Iran as a global energy player would mean several things. Instead of one Opec heavyweight – Saudi Arabia – as there has been over the past decade, there would be three, with Iraq and Iran joining the Saudis.

Iran’s subsidy reform programme was derailed from a promising start by politicisation, inflation and the collapse of the rial under sanctions pressure. It would have to be revived to control domestic demand and free up gas for export.

But then Iran could expand supplies to Turkey – desperate to diversify away from Russia – and on to Europe. Gas could also flow to energy-starved Pakistan, and perhaps some of Iran’s GCC neighbours such as Oman. Given access to international technology, it could become a player in the crowded global LNG market by the early 2020s, with very competitive costs, second only to Qatar.

Russia would be the biggest loser from this realignment: not only will it lower prices for its oil, but also competition for its premier gas markets in Europe. China, India and the EU would be among the winners. The stars are briefly aligned: a handshake tomorrow may disappoint – or set global energy on a new path.

Back to the top

More articles

Editor's Picks

 The Greens, villas: Q1 no change. 3BR - Dh210-250,000. 4BR - Dh210-260,000. 5BR - Dh220-300,000. Q1 2013-Q1 2014 5% rise. Pawan Singh / The National

In pictures: Where Dubai rents have risen and fallen, Q1 2014

Find out how rental prices in the prime locations in Dubai have altered during the first three months of the year and the current rates you will pay according to data provided by Asteco.

 Miele coffee maker making Cappuccino at Miele Gallery in Sama Tower in Dubai. The cost of this coffee maker is around Dh 17,000. Pawan Singh / The National

Space-age coffee comes at a price from Miele

Miele have taken the coffee machine to a new level with its Dh17,000 offering that is built into your kitchen.

 The bridge of Seajacks Hydra, as the wind farm installation vessel undergoes finishing touches and testing works at Lamprell’s Hamriyah facility in Sharjah before its planned delivery on June 2, 2014. Jeffrey E Biteng / The National

In pictures: Building the Seajacks Hydra

The Seajacks Hydra, a wind farm installation vessel, is undergoing finishing touches and testing works at Lamprell’s Hamriyah facility in Sharjah before its planned delivery on June 2, 2014.

 The Wind, Energy, Technology and Environment Exhibition takes place from April 14 to April 16. Above, the Dewa showroom during last year’s Wetex. Jaime Puebla / The National

April corporate and economic calendar for the UAE and overseas

From Cityscape to Wetex to stock-market holidays to nations reporting first-quarter GDP figures, here is our helpful calendar of April's business events in the UAE and internationally.

 The rush of new supply of hotel rooms pushed Dubai occupancy rates down to 87 per cent. Sarah Dea / The National

Dubai hotel room rates rise 10 per cent

The rush of new supply pushed occupancy rates down to 87 per cent, a dip of 2.6 per cent from the previous year. Winter months are the strongest for Dubai hotels, with occupancy and prices falling to half their peaks by July.

 Get the latest information on credit cards, bank accounts and loan products in the UAE. Mark Lennihan / AP Photo

Rates report: Latest on UAE loans, accounts and credit cards

Souqamal.com brings you the latest interest rates on banking products in the UAE.


To add your event to The National listings, click here

Get the most from The National